Zombie. Origin Voodoo culture, West Indies, Noun: the body of a dead person given the semblance of life, but mute and will-less, by a supernatural force, usually for some evil purpose.

After Japan’s property bubble burst in 1990, the financial landscape was populated by what became known as zombie banks – they had economic net worth less than zero but continued to operate because of government support.

Zombies, it turned out, could breed.

For the decade after the bubble burst Japanese growth stalled as banks, in turn, kept companies on life support so as to conceal the true extent of the bad loans on their books.

The financial health of zombie companies, as they became known, was so poor they were unable to innovate, take risks, invest, or to undertake any of the activities on which a growing economy relies.

Japan became the sick man of Asia.

At the time, the advice offered by many disinterested observers was to allow the banks and companies to be taken over by new owners.

Existing shareholders would take a bath but the underlying assets would, fairly quickly, be re-employed in productive uses, allowing growth to resume.

Perhaps more importantly politicians, whose lax oversight caused problems in the first place, would feel also feel the pain at the ballot box. So they chose to prop up the zombies.

In retrospect it was a bad idea to take the easier political road with a long recession the causes of which were obscured by the passage of time.

Tasmanian politicians face the same choice now.

For almost a decade, structural change in the Tasmanian forest industry has been retarded by the presumption of explicit or implicit government support to maintain the status quo – long term pulpwood agreements from Forestry Tasmania, large scale plantation establishment for pulpwood, and so on.

What started out as the icing on the cake ended up as the whole cake.

The problem is, to follow the lead of others with mixed metaphors, the horse isn’t doing much work while munching away at most of the hay in the barn.

Maybe Gunns is a zombie firm – I don’t know, but governments should step back and let the market decide.

Our political leaders should ask themselves – ‘Would it be so bad if explicit and implicit support for Gunns were withdrawn?’

If the underlying assets were used more productively by better managers, innovation in the forest industry, sorely needed, might at last get under way.

Some have argued that not only Gunns shareholders and incumbent politicians would lose, but Tasmania’s reputation as a place to invest would suffer.

Not so, in my view.

Keeping zombie firms alive is voodoo economics.

Graeme Wells teaches and publishes in a variety of areas in macroeconomics and economic policy. He has also held teaching and research positions at ANU and universities in Wellington, Oslo, Santa Barbara and Guelph. In addition to his academic work, Dr Wells has been a consultant to a variety of policy-making agencies such as the Reserve Bank of New Zealand, The New Zealand Treasury, The Australian Treasury and EPAC. For a number of years was Co Editor of the journal ‘Agenda’, which provides a forum for debate on current policy issues in Australia and New Zealand.

It seems that all the talk is about support or not for Gunns pulp mill proposal.

All this is going on with an ethics committee of sorts says nothing.

A stand out issue is why politicians are throwing money at a private firm like there is no tomorrow.

What hold has this firm over our leaders?

Why does this inequitable, morally bereft paradigm seem perfectly legal to our community at large?

Why not throw money at schools, hospitals and policing for example?

Why is this public money being diverted to a private company on the whim of a pie in the sky pulp mill?

Our politicians seem to think that this is all hunky dory-business as usual.

From where I am it looks like above the table fraud.

Perhaps they need to pump some of our money into the cigarette industry as they appear to be in the doldrums lately?

I can’t see the difference over one industry or the other….in fact I would argue that the fag makers employ many more people both directly and indirectly, than the forest industry.

I’m a non smoker, but I don’t work in the forest sector either.

I do passive smoke from time to time and I live in a timber house, so I am a vested interest in that sense.

So perhaps our leaders could roust up a little dinero to keep those fag prices affordable?

I mean its all about balance, and jobs, jobs and balance….

Posted by Dave Groves on 07/03/11 at 06:52 AM

That explains why Launceston’s ‘zombie firm’ is not run by a chief executive officer but by a high priest. Somebody who mutters contradictory sentences into the ear of a ‘zombie journalist’. We end-up with the zombie in the street, who believes they are building a big factory to make jobs and that the over-supplied commodity it produces is merely a by-product. The CFMEU zombies are reduced to lobbying to build factories they can work in. You would think if they had success at this strategy they would become entrepreneurs and build their own factories. Sadly zombies don’t think like that.

Posted by Karl Stevens on 07/03/11 at 07:50 AM

The longer this dead horse (Gunns) is kept on the (fast)track, the longer it will take for Tasmania to develop.

Gunns is a noose around Tasmania’s economic neck. It has nothing to offer except more of the same, or worse, a dud pulp mill.

Posted by Russell Langfield on 07/03/11 at 07:54 AM

Agree with you entirely Graeme. And it is not just support for Gunns but for the entire forest industry, and not just in Tasmania, but in SA, WA, and NSW. The forest industry has been run as a zombie industry for decades, and large sections of the community support that idea (eg. recent community opposition to the proposed sale of government plantations in South Australia). Why does the Government have to be the main grower of trees in this country? Why can’t farmers be given this opportunity?
Will Hodgman’s unquestioning support for the status quo has nothing to do with his personal interest in the industry. He’s just try to wedge the Government. And when the forest industry loses as a result of it (as they inevitably will), does he care? Of course not.
The forest industry needs to stop playing the role of political football. It does them no credit, and does them immense commercial damage as they are now discovering at the 11th hour.
Finally, reforming the forest industry in Tasmania will not work, if the industry in the rest of the country is not also reformed. Vic and QLD are well advanced in their reforms(with still romm for more), but they are hindered by the recalcitrant States like Tassie. Will NAFI bite the bullet and create a new agenda?

Posted by Dr Gordon Bradbury on 07/03/11 at 08:30 AM

Excellent article Graeme. Zombie firm is a new one to me but I like it!
It appears to me that the politicians have never stepped back and had a good hard look at the underlying business model for Gunns. Gunns is based simply on expansion. It’s a very old fashioned model and one that lies behind so many spectacular crashes. If you keep borrowing, keep expanding, you never actually have to be a sustainable business.
Of course, sooner or later the music stops playing and that’s where the skill comes. You either have to be smart enough and quick enough to get a chair, or you have to persuade the Government to bail you out. “Too big to go broke” are the magic words!
Personally I think it grossly unfair that businesses who are prudent and sensible should be expected to prop up those who recklessly gamble.

Posted by Steve on 07/03/11 at 09:00 AM

While I agree that Gunns is controlled by malignant forces, I suspect they are intrinsic, and probably no more rapacious than a great many other resource corporations dependent on undue government patronage.

What gives a dumb cowboy like Gunns their supernatural powers is their extraordinary marriage with the bipartisan Tasmanian political establishment. This coupling has provided them access to Tasmanian public forests at peppercorn prices, while the public is left with both economic and environmental costs in the hundreds of millions.

So why did the Tas government embrace such an ugly spouse? i’m guessing its the same reasons set out for the brilliant documentary on the GFC, “Inside Job” . That film portrayed the giant merchant banks buying a succession of US presidents in exchange for laissez faire legislation, the planting of industry execs in the regulatory bodies, and the purchase of Ivy League academics to endorse these policies. A combination of bribery and blackmail, just like Tas, but on a macro scale.

How do you fix it? We could start by removing the pollies’ reliance on donations, but expect a battle from their corporate sponsors.

John Hayward

Posted by john Hayward on 07/03/11 at 01:18 PM

Apparently missing from our economy, even from our thinking, is the idea that value can be created by the actions of people.

It can also be destroyed.

The Tasmanian forest industry has relied on destroying value (e.g. trees that take decades to grow) and selling the result for the least possible price (as dry chips).

The result is a depleted landscape, massive losses of species and diversity, smoke plumes, damaged roads, food production sacrificed to pulp plantations and diminished water catchments.

As a consequence, forestry’s existence relies entirely on public subsidies.

All this at a time when we need our remaining forests as forests, when water is often scarce, when there’s a global food shortage, and when the natural environment is under increased pressure.

This is not a zombie industry - it’s a leech industry - a parasite entirely willing to destroy the host.

We need to recognise the role that forestry is playing in the degradation of our society, and act accordingly.

Posted by Mike Bolan on 07/03/11 at 01:29 PM

Barry Jones, academic and former National President of the ALP said; ” Over-specialisation and economic dependence in particular regions inhibits the development of service activity. High growth rates, profitability, significant return on investment are hallmarks of economic efficiency - but if they lead to high unemployment, demoralisation and human wastage then social losses may outweigh any economic growth.” and referring to Tasmania he said; ” An oversimplified reliance on the concept of comparative advantage often leads to an anxious fear of change and rejection of the idea that there would be another way of generating wealth and employment other than hydroelectricity and woodchips. This then becomes a self-fulfilling prophecvy and ECONOMIC MONOCULTURES ARE PARTICULARLY VULNERABLE. The relevant interests and lobby groups work hard to sell the idea that there is no choice, it is inevitable.”

Posted by alan on 07/03/11 at 03:52 PM

Pity he’s not still president of the ALP. He had brains and had to go, alas.

Posted by Mike Adams on 07/03/11 at 07:23 PM

Often as we do, we read the particularly interesting and cogent comments to the many articles provided for our interest and discussion, indeed even of original articles that have appeared in the Tasmanian Times Forum.

There is a man who stands tall among the contributors and attendees to Tas Times, a popular and prodigious contributor, I speak of John Hayward, I would like to express my delight and appreciation here, of the interesting slant John provides to each of his comments and articles.
John’s thoughts views and expressions are of a deep wise and perennial nature to so many of us associated with Lindsay’s fine Forum.

Thank you John Hayward.

William Boeder.

Posted by William Boeder on 07/03/11 at 07:54 PM

The biggest zombie firm in the Tasmanian forest industry is not Gunns but Forestry Tasmania. Since 2005-06, FT has received $145.7m in state and federal subsidies under the Tasmanian Community Forest Agreement (TCFA), but returned only $7.2m to the community ($3.7m in dividends and $3.5 in tax). This represents a cost to the community of $136.5 m in 5 years.

FT has not paid tax since 2005-06, nor a dividend since 2006-07. Over the longer term, FT has created a cost to the community in eleven of the past fifteen years; and when it was corporatized in 1990, a debt of $272m accumulated by the Forestry Commission was ‘written off’ by being transferred to general government debt. No private commercial enterprise could generate this level of losses over this length of time and remain in business.

This is an even deader, more zombie record than Gunns. And while private shareholders suffer from Gunns inept financial management, all Tasmanian, as FT’s shareholders, are the ones being continually ripped off – and losing our irreplaceable natural heritage into the bargain.

Forestry Tasmania has to go – we can’t afford it any longer!

Posted by lmxly on 08/03/11 at 12:03 PM

Thank you Imxly, your so eloquently expressed views are so in line with my own, also that I have not yet read or been convinced otherwise.

Even one of their backdoor stalwarts and support persons has stated the same, yes he said they are ever behaving like a mind-addled bunch of monkeys, why I cannot understand!

I am still in awe as to the brazen manner assumed by Forestry Tasmania, and in the way they claimed some 300 plus million dollars worth of Crown land for themselves?
A transaction of this magnitude would have to involve the board members surely?

There is ever the ringing sounds of silence when that additional issue of the missing 200,000 Hectares of our Island, either it changed hands surreptitiously or just went missing, why is this so?

I would like to see Tony Burke investigate these 2 matters, rather than fool around with some sort of fake signal of approval to the most reprehensible business operation in our Sate, (if not in the whole of Australia,) now that would be ministerial time well spent!

This could solve or even remedy the cankerous stench of these 2 magnitudinal Zombie real estate transactions, and would be much preferred and be of a possible fiscally advantageous action for all in Tasmania, far better than a glut of our political ministers pandering to a “corrupt shyster plundering private enterprise blight” upon our State lands.

Posted by William Boeder on 08/03/11 at 03:51 PM

#11.Some deductions from your figures.

Over the last fifteen years, each and every Tasmanian has had to pay forestry $680.50. However, as only about one quarter of the populatiion are taxpayers, that averages out at $2722 each.

This means that Forestry, to achieve this loss, has underpriced the product by $408.5 million, and as Gunns is the near monolpoly cutomer, this is the amount of indirect subsidy they have received via Forestry. Then add to this all the other financial support they have received and the cost of purpose-built and indirect infrastructure etc, then you can see why they are in a position to hand back large sums to the political party funds.

This is a prime example of money laundering and is possibly the reason why the various governments have maintained this loss-making GBE and supported this private enterprise from public funds for all these years. In any independent organisation this would be considered a criminal act on several counts, but then, this is the government….?

Posted by Barnaby Drake on 08/03/11 at 09:23 PM

With Lennon (the original architect of one of the state’s most divisive and confrontational periods) reputedly pulling Giddings strings after Bartlett was reputedly helped to make up his mind to depart because he made his “line in the sand” statement, you have to wonder how Lennon still achieves as much influence as he does.

How many Labor politicians jump when Lennon says to? What decisions are made because he orders it? He quit as a politician 3 years ago, but his influence seems unduly strong, particularly for someone who made himself so very unpopular with the public.

Labor politicians are expected to follow their political hierarchy and dogma before their job description, placing preservation of position and maintenance of pay packet above allegiance to the people and achieving outcomes that benefit at least most of us.

As inefficiency, incompetence and devotion to self-interest seem to be the only standards which are achieved to a high level, we get a very poor return on our investment in these clowns.

Posted by salamander on 08/03/11 at 09:44 PM

This timely, fact-based and well organised Article should be required reading for all State politicians and bureaucrats.For those unable to comprehend simple economic data, I’m sure Dr Wells would willingly set up a private class just for them using word pictures, sexy graphs and cartoons conveying a message that ten-year olds would have no difficulty understanding.Although, come to think of it, even that could be a wasted effort. Worth a try ?
Anthony John

Posted by Anthony John on 09/03/11 at 11:10 AM

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